Chinese stocks just got destroyed

The world's hottest stock market, the Shanghai Composite, took a
run at the 5,000-mark at the start of trade Thursday and failed.

The index closed down 6.5% for the session. That's the biggest
drop since January.

It looks as if the overhead resistance was huge: after the lunch
close the index fell hard in a monster day of trade. The Shanghai
Stock Exchange saw A share turnover hit 1.2 trillion yuan
($193.57 billion), a record high, on the selloff.

For some context, even after Thursday's massive plunge, the
market is still up a whopping 43% since the beginning of the year
and 132% from a year ago.

Here's the intraday chart:

Investing.com

Clamping down and front-running

MSCI's broadest index of Asia-Pacific shares outside Japan shed
about 0.8%, extending losses in afternoon trading as Chinese and
Hong Kong shares plunged as a growing number of brokerages
tightened requirements on the margin financing.

On Thursday morning at least three Chinese brokerages, including
Guosen Securities Co., Southwest Securities Co., and Changjiang
Securities Co. said they would tighten margin requirements.

"The brokerages are front-running what the regulator wants to
do," said Bernard Aw, an analyst at ING Markets in Singapore.

Investors look at computer
screens showing stock information at a brokerage house in
Shanghai.REUTERS/Aly
Song

Haitong Securities and GF Securities had made similar moves
earlier in the week.

"This is no longer an individual case, but an industry-wide
campaign," said Zhang Chen, analyst at the Shanghai-based hedge
fund Hongyi Investment. "Clearly, they got guidance from
regulators, and this shows a change of government's attitude
toward the margin trading business."

The CSI300 index of the largest listed companies in Shanghai and
Shenzhen tumbled 3.2%, while the Shanghai Composite Index lost
2.8%. Hong Kong's Hang Seng index shed 2%.

The rest of the market

Australian shares gave up early gains, with the S&P/ASX 200
index losing 0.2% after weaker-than-expected business-spending
data suggested that rate cuts were failing to energize the
economy as hoped.

Japan's Nikkei bucked the downtrend, as the weaker yen helped the
index log its 10th consecutive rise, the longest winning streak
since February 1988. It ended up 0.4%, refreshing a 15-year
closing high.

The dollar hit its highest level against the yen since late 2002,
rising as high as 124.30, and was slightly higher on the day at
123.66.

The dollar's latest rally was sparked by remarks from Federal
Reserve Chair Janet Yellen, who said last Friday that she
expected the central bank to raise rates this year as the US
economy was set to recover from a sluggish first quarter.

By contrast, many investors expect the Bank of Japan to take
additional easing steps later this year, when the Fed is expected
to start raising rates.

"Longer term, little stands in the way of further JPY losses,"
said Greg Moore, senior currency strategist at RBC in Sydney.